What represents the demand for loanable funds in the saving-investment framework?

Disable ads (and more) with a membership for a one time $4.99 payment

Prepare for the Texas AandM ECON410 Macroeconomic Theory Exam with our interactive quizzes and study aids. Utilize flashcards and multiple-choice questions, all complete with hints and explanations, to ace your test!

The demand for loanable funds in the saving-investment framework is represented by the downward sloping line of investment. This line captures the relationship between the interest rate and the quantity of loanable funds demanded for investment purposes. As the interest rate decreases, the cost of borrowing becomes lower, which typically encourages more investment by firms. Consequently, the quantity of loanable funds demanded rises as businesses find it more profitable to undertake new investment projects when borrowing costs are lower.

This downward slope illustrates the inverse relationship between the interest rate and the quantity of funds demanded for investment, aligning with the general principle that lower borrowing costs lead to increased investment activity.